Billionaire investor Ray Dalio believes that reducing the U.S. budget deficit could help stabilize the bond market and lower interest rates. Dalio, the Founder & CIO Mentor of Bridgewater Associates, one of the world’s largest hedge funds, shared his views at the WEF Annual Meeting in Davos, Switzerland on Jan. 16th, 2024.

Dalio pointed out that the current projected deficit is 7.5% of U.S. gross domestic product, and if that ratio could be reduced to 3%, it would significantly lessen the supply-demand imbalance in the bond market. He emphasized the importance of addressing the issue to stabilize the market.

Addressing rising financing costs and the growing national debt, Dalio emphasized the need for a strategic approach to reducing the deficit through a combination of higher taxes and lower spending. He highlighted the necessity of political collaboration in finding a solution to the problem.

Dalio referred to this approach as the “3% solution,” underscoring the importance of tackling the debt issue to prevent it from overshadowing other critical areas such as spending and taxes. Despite the challenges posed by fragmented politics, Dalio remains optimistic about the potential for a resolution.